RFID reality check.

COMPANIES THAT WAIT for Radio Frequency Identification (RFID) tag prices to drop could miss out on business benefits now, Gartner warns. RFID is gaining popularity as an alternative to bar-coding for tracking inventory; the advantage being that RFID doesn't require direct contact or line-of-sight scanning.

"RFID technology holds exciting opportunities for almost every business," says Stephen Smith, Gartner research vice president. "But rather than ask at what price does a total RFID strategy become effective, retailers should identify specific business cases for the technology based on today's price."

Although some companies are hoping 5-cent RFID tags will be available in the near future, Garter says this isn't going to happen any time soon. "There are conflicting problems with assembling low-cost tags. One of the primary things vendors must do to reduce tag cost is reduce the size of the chip. However, reducing the size of the chip makes assembly more expensive. No vendor has been able to escape this paradox," Smith says.

Today's passive RFID tags cost from 40 cents to $10. Active tags usually start at $4 to $5, increasing to hundreds of dollars. Active RFID technology uses an internal power source [battery] to power the tag and its RF communication circuitry, whereas passive RFID relies on RF energy transferred from the reader to the tag. By 2009, the most competitive passive RFID tags will cost 20 cents.

Smith expects companies will go through a two-phase adoption of RFID. First, they'll RFID-enable existing business processes; then they'll reengineer business processes around RFID to increase ROI.